Joel Greenblatt is a hedge fund manager and author of a very popular book, "The Little Book That Beats the Market[/i]."

Now he has a new project under development: a book called "The Big Secret for the Small Investor."

Little Book, as it is generally referred to, states that investors can defeat the market by buying good companies at good prices. But it does not give a theoretical explanation; Greenblatt actually shows it how to do it. His tactic is to find companies with high earnings yield ratios and high return on capital, to rank them and buy a position in them.

It is a very simple formula, but one that has boosted Greenblatt to form a family of funds and follow this strategy. Indeed he tries to find cheap and good companies. He likes special situations.

In his own company, Greenblatt follows the basic pattern: He looks for a high rate of return and high yields in earnings. Then, he estimates how earnings will be in three to four years time and finally buys a position.

Now, it is worth analyzing what he has been able to purchase following this simple formula:

Dolby Laboratories (NYSE:DLB): this American company specializing in audio noise reduction and audio encoding has shown very good results in the last quarters. With EPS of $0.44, the company is expecting to report revenue ranging from $700 million to $715 million.

No doubt it is a good pick. It has an industry-leading gross margin of 88.5%.

Forecasts for the future are even more spectacular. The revenue estimate is $770 million, while the EPS $2.17. Shares are expected to trade at $50.

Northrop Grumman (NYSE:NOC): the company's financial statement clearly reflects a very good performance during the year. To start with, the gross margin was of 18%, the operating margin of 9.26%, and new profit margin of 5.9%. Insiders, owning 0.51% of the company, increased their holdings by 35.36% in the last six months. But that is not all:

P/E is 9.41, and forward P/E falls to 9.15. Earnings per share increased by 39.11% and are estimated to increase another 6.65% in the next five-year period. As regards stock, it has increased 30% in the last few months. It is definitely a good opportunity.

Analog Devices (NASDAQ:ADI): is one of the largest suppliers of analog semiconductors. Its industrial segment represents over 45% of sales. Other important segments are communications (22%), and consumer (19%). In the first quarter only, revenue raised 18% year over year and margins reached a 39% increase in operating income. Indeed the operating margin has been rising from 25% in 2006 to over 35% in the last year.

These are good results for the foreseeable future. Least but not last, the company has a stunning balance sheet with more than $3.4 billion in cash, over $900 million in total debt.

Applied Materials (NASDAQ:AMAT): This company is recovering from the Japanese earthquake that has been a setback to its operations in the country. Despite this headwind, Applied Materials is very well positioned because it operates in four segments:

· The Silicon Systems group develops equipment for the chip fabrication process and sales have represented 55% in the last year.

· Global Services provides services to improve the efficiency of semiconductor factories and sales have represented 20% in the last year.

· The Display segment develops equipment used to produce flat panel displays and sales have represented 9% in the last year.

· Finally, Energy and Environmental services produces equipment used in the production of solar cells and energy efficient glass and sales have represented 16% in the last year.

But that is not all. The balance sheet has nearly $2.6b in cash and only $200m in debt.

From a valuation standpoint, shares are cheap with a low P/E ratio.

Applied Materials will soon be in the upward trend again.

Hewlett Packard (NYSE:HPQ): This widely known company has not been doing well lately. It has $25 billion in debt today. One point in favor: $55 billion market cap and a total enterprise value of $67 billion. EBITDA is around $14 billion.

In spite of these results, HP is a good choice now. Stock is trading cheap, just as Greenblatt prefers, nearly $20 and management is making efforts to improve. If management is able to stabilize the business and shares raise $10 to $15, HP investors will be hugely rewarded.

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